Core Curriculum Chapter 5 Flashcards
TVM - What is the Time Value of Money (TVM)?
The concept that money today is worth more than the same amount in the future due to earning potential.
TVM - What is an annuity?
A series of equal payments made at regular intervals, such as pension payouts or mortgage payments.
TVM - What is Present Value (PV)?
The value today of a sum that will be received in the future, adjusted for interest rates.
TVM - What is Future Value (FV)?
The value in the future of a sum invested today, accounting for interest or growth.
TVM - What is a discount rate?
The interest rate used to determine the present value of future cash flows.
TVM - What is yield or return?
The profit earned on an investment, often expressed as a percentage of the initial investment.
FINANCIAL CALCULATOR - What does N represent on a financial calculator?
N represents the total number of time periods in a financial calculation.
FINANCIAL CALCULATOR - What does I/Y represent?
I/Y represents the annual interest rate or discount rate in a financial calculation.
FINANCIAL CALCULATOR - What does PV represent?
PV represents the present value, or the starting amount of money in a transaction.
FINANCIAL CALCULATOR - What does PMT represent?
PMT represents the recurring payment amount in an annuity, mortgage, or loan.
FINANCIAL CALCULATOR - What does FV represent?
FV represents the future value of an investment or loan after interest is applied.
FINANCIAL CALCULATOR - What is the difference between P/Y and C/Y?
P/Y (Payments per Year) refers to the number of payments made annually, while C/Y (Compounding per Year) refers to the frequency at which interest is compounded.
INTEREST & RETURNS - What is simple interest?
Interest that is paid only on the initial principal, without compounding.
INTEREST & RETURNS - What is compound interest?
Interest earned on both the initial principal and any previously earned interest.
INTEREST & RETURNS - What is an arithmetic return?
A total return percentage that does not account for the time value of money.
INTEREST & RETURNS - What is a time-weighted return?
A return measurement that accounts for reinvestment and the passage of time.
INTEREST & RETURNS - What is a dollar-weighted return?
A return calculation that factors in the timing and amount of cash flows invested or withdrawn.
FINANCIAL PROBLEMS - How is investment growth calculated?
By using FV, PV, PMT, I/Y, and N in a financial calculator to determine how an investment will grow over time.
FINANCIAL PROBLEMS - How can you determine a loan or lease interest rate?
By solving for I/Y using known values for PV, PMT, FV, and N in a financial calculator.
FINANCIAL PROBLEMS - How do you calculate required retirement savings?
By determining the future income needed, adjusting for inflation, and solving for PMT using FV and I/Y.
FINANCIAL PROBLEMS - How do you calculate mortgage payments?
By using PV, I/Y, N, and PMT in a financial calculator, while accounting for compounding and payment frequency.
